Mutual Funds
Capital GainsWhen a mutual fund manager sells a stock in the fund, there is a capital gain realization in the fund to the fund holders. Much like when you sell a stock in a single that you may hold, and the stock sale price is higher than the stock purchase price, the increase is a capital gains for the investor. In much the same manner, the fund manager passes the capital gains income to the fund holder, either in the form of a check or distribution, or in the form of a reinvestment in the mutual fund. Again like with dividends, to the extent the investor does not need the income, it is well-advised to reinvest the income as the temptation to cash the check and not save the money is never there, since the check is never issued to the investor.
|
